Vancouver Mortgage Innovator Launches New Product
A Vancouver firm, Fraction Technologies Inc. (Fraction), is aiming to disrupt the North American lending landscape.
The company has developed a mortgage-like product where the interest rate is tied to the value of the home. The more the value of the home rises, the more you pay Fraction. Instead of monthly payments, the accrued interest is payable upon the sale of the home.
If, for instance, a home appreciates an average of 5% over a five-year term, that then becomes the effective rate. For homes that appreciate significantly, Fraction charges a maximum rate of 7.99%.
If a home drops in value, Fraction charges a minimum rate of 3.49%.
They participate in the upside, but they are protected from any downside risks.
Fraction Technologies chief technology officer Josh Baker, left, and CEO Hayden James
The genesis of the company emerged from the time co-founders James and Josh Baker spent working on technology for a real estate brokerage.
“We had seen our friends and family had to sell their homes in order to access their home equity. And then on the other side, we got to see a lot of investors that were looking to buy a property but then not rent it out, which is kind of the classic Vancouver story,” James said.
Initially, the pair worked to develop a business model that could bridge that gap and allow people to sell shares in their homes. “We came to the conclusion pretty quickly it was a pretty bad idea,” James recalled, explaining why the company shifted its focus to a mortgage-like product.
Fraction’s mortgage product is currently available to homeowners in B.C. and Ontario, while the CEO said he hopes to make it available in Washington state by the second half of the year.
“The U.S. has different federal laws that we have to look at which are really important,” he said, referring to redlining legislation meant to prohibit lending discrimination.
Some heavy-hitting venture capitalists are backing the firm. On February 10th, Fraction revealed it’s raised $289 million from Panache Ventures Inc. and Impression Ventures, among others.
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